California Partition Law Blog
In California, the typical trust administration takes between 12 to 18 months to complete. The process can take significantly less time, ranging between 4 to 5 months, when distribution terms are straightforward. Oppositely, the distribution time frame can also take longer than 18 months depending on factors, like outstanding debts or real estate sales, which can cause significant delays in the distribution process. Ultimately, the asset distribution timeline relies heavily on the complexity of the estate and the trustee’s ability to carry out the trust’s terms.
What is a Trust?
A trust is a legal arrangement designed by the trust creator (also commonly known as the “Settlor”, “Grantor”, “Trustor”) to appoint a third-party (“Trustee”) to hold and distribute the trust assets to the trust’s designated beneficiary(ies). Distribution of trust assets most commonly occurs after the grantor’s death. A grantor creates a trust by placing a collection of assets and liabilities in the trustee’s control for the benefit of one or more beneficiaries. Once executed, a trust creates a fiduciary relationship with the trustee. (Jo Redland Trust, U.A.D. 4-6-05 v. CIT Bank, N.A., 92 Cal.App.5th 142.) A trustee is necessary to administer trusts because the nature of the trust’s fiduciary relationship with the property prevents the trust from suing or being sued, holding title to property, owning property, and entering contracts. (Portico Management Group, LLC v. Harrison, 202 Cal.App.4th 464, 473; Greenspan v. LADT, LLC, 191 Cal.App.4th 486, 521.)
What is a Trustee?
In asset distribution, a trustee is the individual or entity appointed by the grantor to manage and administer the trust. Subject to the fiduciary relationship, the trustee can sue or be sued in their representative capacity, hold title to property, own property, and enter contracts necessarily related to trust management. (Greenspan, 191 Cal.App.4th at pp. 521.) A trustee is entitled to exercise the powers bestowed upon them by the trust’s fiduciary relationship without court approval.
California Probate Code outlines the role and duties of a trustee in the asset distribution process. Trustees have a duty to take reasonable steps under the circumstances to preserve the trust property by taking and maintaining control of it. (Prob. Code, § 16006.) This means a trustee is statutorily authorized to take, collect, hold, and retain possession of and/or control of trust property until the court, or trust terms, order disposition should be made.
Trustees are bound by the terms outlined in the trust. (Prob. Code, § 16000.) This means that a trustee cannot refuse to complete a distribution unless the trust terms state the trustee is allowed to refrain from that distribution of assets. Trust terms can, however, give the trustee authority to withhold distribution from beneficiaries until they reach a certain age, stagger distribution of assets according to trust terms, or even to decide when and how much of the assets to distribute. A trustee who violates the trust’s terms of distributions violates their fiduciary duties and may be sued by a beneficiary for mishandling the assets. (Prob. Code, § 16202.)
The Asset Distribution Process: How long does it take?
The asset distribution timeline varies due to a variety of factors that influence, and sometimes limit, trustee’s actions throughout the process. Trusts with outright distribution clauses, typically complete distribution within 12 to 18 months. (Prob. Code, § 12200.) In simpler cases, distribution can take only 4 to 5 months when the distribution terms are incredibly clear and undisputed. The exact distribution timeframe varies dependent on factors like the estate’s complexity, the trust document’s instructions, outstanding tax, legal, or creditor issues, pending real estate sales, and disputes among trust beneficiaries.
The rule governing most asset distribution timelines is commonly known as the “One-year/18-month rule.” This rule requires that trustee’s file the petition for final distribution of an estate, within one year from the date letters of administration were issued, if no federal estate tax return will be filed. (Prob. Code, § 12200.) The rule allows trustees to file the petition for final distribution of an estate within 18 months from the date letters were issued if a federal tax return will be filed. (Prob. Code § 12200.) Letters of administration are court-issued documents that grant the trustees legal authority to administrate the grantor’s estate. Trustees must file a verified status report instead of a petition for final distribution when neither time frame is possible to meet because the estate cannot be closed due to unsettled debts, prolonged litigation, or other prolonging circumstances. (Prob. Code, § 12201.)
In Estate of Heller, the court affirmed the denial of a trustee’s commissions for unnecessarily delaying the estate’s distribution. ((1992) 7 Cal.App.4th 862, 866-67.) Administration of the estate in Heller took four and a half years to complete including a court granted extension and appointment of a successor trustee. California Probate Code Section 12205 allows the court to reduce compensation of an estate’s personal representative when administration is unnecessarily delayed while in control of the appointed representative against the estate’s best interests. (Prob. Code, § 12205.) Applying this rule, the Heller court found that the successor trustee delayed the estate’s administration against the estate’s best interest to find missing funds and delayed sale of real estate property held in the estate by failing to complete necessary paperwork. (Estate of Heller, 7 Cal.App.4th at pp. 866.) No evidence showed that the delay was not directly attributed to the trustee’s own actions. The original trustee had completed most administration tasks and the successor trustee’s failure to conduct a timely and thorough investigation of the missing funds and complete paperwork for the sale of property were unsuccessful because of a lack of effort. (Id. at pp. 868.) Accordingly, the court held administration was unnecessarily delayed, and commission was properly denied. (Id.)
In some cases, the grantor’s will includes a time limit for administration of their estate. The court treats time limits in wills as suggestions, meaning the trustee’s powers of administration are not limited if time beyond the grantor’s limit is necessary. (Prob. Code, § 12206.)
What Factors Delay Asset Distribution?
A complex estate in California, is an estate valued at upwards of $1 million dollars. Complex estates may require prolonged or delayed distribution because of intricate assets such as real estate, stocks, intellectual property, investments, and businesses. An estate is also considered complex when it is subject to complex probate court processes or tax obligations or involves assets in the United States owned by a foreign, non-U.S. citizen individual.
The trust’s document instructions themselves can also delay the asset distribution process. For example, if a trust’s instructions are unclear, or are contradictory within its own written terms, a trustee may not understand the grantor’s intent, leaving them unable to immediately distribute the assets. When this happens, the trustee must take additional steps to decipher the grantor’s intent and desired distribution of assets. This lack of clear intent delays the distribution process and increases the likelihood of disputes among beneficiaries.
Tax, legal, or other creditor issues delay the distribution of assets because of outstanding claims against the estate. Trustees facing these implications must carefully resolve any outstanding tax, debt, or creditor issues, before distribution to beneficiaries is possible. Likewise, any ongoing lawsuit or legal dispute involving the trust must resolve before any asset distribution to beneficiaries can occur. (Prob. Code, § 16365; Prob. Code, § 19001.)
If the trust holds real estate property which must be sold prior to distribution, either to satisfy outstanding issues or to fulfill trust terms, the sale process can delay asset distribution. This is especially true when the estate lacks sufficient funds to settle the grantor’s outstanding debts and expenses. Like tax, legal, and creditor issues, the sale of real estate property must be completed before distribution of assets to beneficiaries.
Lastly, beneficiary disputes over the trust assets can result in negotiations or legal disputes, delaying the distribution process until they are resolved. If a beneficiary dispute results in contesting the trust, resolution may require a court trial, causing a significant delay in asset distribution. Additionally, a trustee’s inability to locate a named beneficiary can delay the distribution process as well.
What Is an Example?
For example, “Shawn” created a trust in his lifetime which holds his home, investment accounts, and other assets. Shawn named “Julie” as trustee, meaning Julie is responsible for administering the trust and distributing the assets to the beneficiaries after Shawn dies.
When Shawn dies, Julie reviews the trust instructions and learns that the assets are to be distributed equally to Shawn’s three children, one year after all of Shawn’s outstanding tax and creditor claims are resolved. Shawn has $500,000 in outstanding debts owed to creditors. Shawn’s entire estate is worth $1.5 million dollars. Julie pays Shawn’s outstanding debts using the trust property as stipulated by the trust terms, and files tax returns to ensure no other outstanding debts exist. Julie settles all of Shawn’s debts 10 months after Shawn’s death. Accordingly, 1 year and 10 months later, Julie distributes the remaining trust assets equally among Shawn’s three children in accordance with the trust terms.
In comparison to the typical 12-to-18-month asset distribution timeline in California, distribution of Shawn’s estate took a total of 22 months. In this instance, Julie is not liable for the delay in distribution because Shawn’s trust terms explicitly required the delay.
Conclusion
The Underwood Law Firm has a team of experienced lawyers who can help resolve your property ownership interest disputes at trial and help you navigate complicated legal processes like asset distribution, to recover the entirety of what you are legally entitled to. We are here to help.